YEREVAN — Highlighting the deep economic vulnerability tied to ecological decline, European Central Bank Executive Board member Frank Elderson delivered a stark warning on Monday at the Finance and Biodiversity Day during the COP17 summit in Yerevan. Four years after the international community adopted the Kunming-Montreal Global Biodiversity Framework, Elderson told delegates that the world has talked about environmental action for long enough and must now urgently shift from targets to implementation.
Elderson, who also serves as the Vice-Chair of the Supervisory Board of the ECB, stressed that protecting and restoring nature should no longer be viewed merely as an environmental expenditure or a regulatory burden. Instead, he argued, it is a critical economic investment in the natural capital upon which modern financial systems and global prosperity fundamentally rely.
"The destination is set. The path is clear. But progress has remained limited. And nature has not stood still," Elderson said, emphasizing that ecosystems continue to deteriorate at an alarming rate. "Tangible progress requires a shift from targets to implementation, from awareness to engagement, from ambition to investment."
When Ecosystems Falter, the Economy is at Risk
Opening his address, Elderson challenged conventional economic assumptions about what constitutes critical infrastructure. While modern economies frequently focus on physical assets such as roads, bridges, and power grids, they often take for granted the vital natural infrastructure that underpins all commercial activity.
Water keeps factories and farms running, healthy soils sustain global food systems, forests and wetlands regulate droughts and floods, and oceans absorb excess heat and carbon emissions. Citing estimates from the World Bank, Elderson noted that roughly half of the world’s gross domestic product relies directly on biodiversity, natural capital, and ecosystem services.
Internal analysis conducted by the ECB reveals a similar vulnerability closer to home. According to the central bank’s findings, 72% of companies in the euro area depend on at least one ecosystem service, while 75% of euro area corporate lending is directed toward companies that exhibit high dependency on ecosystem services.
For decades, Elderson argued, human society has treated nature as an infinite and free resource, mistaking the depletion of natural capital for genuine economic growth. Economies have routinely counted production and income while ignoring the cost of depleted soils, stressed water systems, weakened forests, and lost ecosystems.
"In economic terms, we have been consuming our capital and calling it income," Elderson remarked. "Nature is already presenting us with the bill. Depleted natural capital is already disrupting production, damaging supply chains and increasing costs. The consequences are already spreading from ecosystems to firms, from firms to balance sheets and from balance sheets into the financial system."
The Natural Currency Underwriting Economic Activity: Water
To illustrate the immediate dangers of misaccounting for natural capital, Elderson pointed to water as the clearest example of a vital resource taken for granted. Economies cannot function when rivers run dry, aquifers are depleted, or ecosystems fail.
He recalled the severe heatwaves and drought conditions experienced across Europe during recent summers, which caused major rivers such as the Rhine, Loire, Po, and Danube to plunge to exceptionally low levels. These drops forced the shutdown of critical nuclear power plants, severely hampered hydropower generation, and disrupted vital supply chains. Furthermore, severe droughts have repeatedly exacerbated destructive wildfires across the continent.
Research involving the ECB, the London School of Economics, and the Oxford University indicates that a severe, once-in-a-century drought event could put up to 24% of euro area economic output at risk. Conversely, an excess of water poses equally severe economic threats, with nearly 12% of euro area economic output facing risks from inadequate flood protection—a danger recently underscored by catastrophic flooding events in regions like Nepal and Bangkok.
In addition to volume, water pollution presents a massive long-term economic hazard. Elderson highlighted the persistent threat of per- and polyfluoroalkyl substances (PFAS), widely known as "forever chemicals," which are used in everyday products ranging from textiles and cookware to batteries and food packaging. These chemicals linger in the environment for extraordinary periods, damaging ecosystems and human health. The European Commission has estimated that if current PFAS pollution levels continue unchecked through 2050, the societal cost in Europe could reach €440 billion, with water treatment alone potentially exceeding €1 trillion.
Nature: Our First Line of Defence Against the Climate Crisis
Elderson emphasized that the cascading crises of climate change and biodiversity loss are deeply intertwined and cannot be addressed in isolation. Healthy ecosystems serve as the planet’s primary defense barrier against global heating and associated extreme weather events.
Europe, which is recognized as the fastest-warming continent on Earth, has seen temperatures rise by approximately 0.56 degrees Celsius per decade since the mid-1990s—more than double the global average. This warming trend follows a series of record-breaking years, including 2024 as the warmest year on record and 2025 ranking as the third-warmest.
The oceans play a critical role in mitigating these impacts, acting as an extraordinary shock absorber that has captured roughly 90% of excess heat from global warming and about 30% of global carbon dioxide emissions. However, Elderson warned that extraordinary capacity does not mean infinite capacity. Humanity has already transgressed seven of the nine planetary boundaries, pushing ecosystems outside their safe operating spaces.
Nature as an Investment in Economic Resilience and Prosperity
Reframing ecological protection as a driver of economic security rather than a competitor to industrial competitiveness, Elderson urged policymakers to recognize ecological stability as the foundation of financial stability. Secure water supplies, resilient food systems, and reliable energy infrastructure are strategic assets that reduce vulnerability to future geopolitical and environmental shocks.
"We should therefore stop treating investment in nature as a competing claim on prosperity and economic resilience," Elderson stated. "It is investment in the productive capacity that makes lasting prosperity possible. There can simply be no lasting prosperity on a collapsing natural foundation."
He warned that society faces a clear choice: invest in preserving and restoring natural capital now, or pay progressively higher costs later through disrupted production, costly adaptation, emergency reconstruction, and lost economic capacity.
From Awareness to Action in Central Banking
Turning to the specific responsibilities of central banks and financial regulators, Elderson noted that nature-related risks are global and systemic, transcending national borders and necessitating robust international cooperation despite rising geopolitical fragmentation.
He praised the ongoing work of the Network for Greening the Financial System (NGFS), which now brings together 152 central banks and supervisors across more than 95 countries alongside 24 observers. The NGFS has established common methodologies, risk assessment frameworks, and a newly released compendium of good practices detailing how financial institutions evaluate physical and transition risks related to nature.
At the ECB, this conceptual shift has already transitioned into practical oversight. Because environmental degradation directly impacts price stability, financial stability, and the overall safety and soundness of commercial banks, nature-related risks are increasingly integrated into day-to-day central banking operations. Banking supervisors now expect financial institutions to identify and manage both material climate risks and nature-related risks. Furthermore, upside risks to price stability stemming from food price spikes caused by extreme heatwaves and droughts have forced central bankers to explicitly factor nature risks into monetary policy assessments.
Concluding his address at COP17, Elderson urged delegates to maintain momentum in the four years since the Kunming-Montreal agreement, warning that humanity continues to consume natural resources approximately 1.7 times faster than ecosystems can regenerate them. He left attendees with three central questions to guide the remainder of the summit: how to mobilize public and private finance at an unprecedented scale, how to turn non-bankable nature-positive opportunities into attractive investments, and how to channel capital toward projects that generate public goods without direct revenue streams.
"Kunming-Montreal set the destination," Elderson said. "COP17 must now accelerate the journey. Turning awareness into action. Turning targets into tangible results. Turning ambition into investment. Because nature is not waiting. Neither can finance."
